The Panamanian legislature is likely to approve a tax treaty with the U.S. by the end of next month, paving the way for a finalization of a bilateral trade agreement between the two countries, a member of the U.S. Trade Representative’s office said yesterday during a congressional hearing.

“I have every reason to believe they will do it before they recess,” Deputy U.S. Trade Representative Miriam Sapiro told the House Ways and Means Committee, according to Bloomberg News. “We are working very hard, and so is Panama. The ball is really in their court right now.”

The tax information sharing agreement will supposedly aid the U.S. in combating tax evasion, which Panama is notorious for. The tax agreement is necessary to corral enough votes in Congress to pass the bilateral trade pact that has been stalled since 2006.

Panama is well-known as a tax haven. It was one of 13 countries listed on all of the major tax-haven watchdog lists that also does not have U.S. tax transparency treaties. Panama also happens to be the only country on that list that the American government is currently seeking to finalize a “free trade” agreement with. If it does, the U.S. would be ceding potentially trillions of dollars.

A report by the U.S. Public Interest Research Group Education Fund found that the U.S. Treasury Department loses approximately $100 billion each and every year due to American businesses utilizing tax havens.

A good portion of that likely winds up in Panama, where 350,000 foreign subsidiaries are located in the country to take advantage of the nation’s lax tax laws, usually in the form of offshore shell companies and fake headquarters. That makes it the second most popular destination in the world for multinational corporations seeking to avoid taxes, behind only Hong Kong.

American companies operating in Panama and taking advantage of its tax haven status include giants such as Caterpillar, Dell, General Mills, Johnson & Johnson, Kraft Foods, Merck, PepsiCo, and Proctor & Gamble.

Coincidentally (or perhaps not), Caterpillar is lobbying heavily for passage of the trade pact, claiming that it will boost business and increase hiring in America.

“We are pleased that Congress and many in the Administration now recognize the importance of trade with Latin America and other countries around the world. For Caterpillar, which exported more than $13.4 billion in goods from its U.S. manufacturing facilities last year, there is a tremendous opportunity to sell more mining trucks and scrapers made in Decatur, Illinois, and track-type tractors made in East Peoria, Illinois, to Panama as part of its canal expansion plans,” CEO Doug Oberhelman said in a statement.

“If we can sell all our U.S.-produced products to Panama duty-free, it will help our customers and provide us with a competitive edge over products made in other parts of the world.”

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